Donkey Bikes could sell its bicycles to retailers eitherassembled or unassembled. The cost of an unassembled bike is asfollows. DirectMaterials $150
Directlabor 70
Variable Overhead(70% of directlabor) 49
Fixedoverhead (30% of directlabor) 21
Manufacturingcost perunit 290
The unassembled bikes are sold to retailers at $400each. Donkey currently has unused productive capacity that isexpected to continue indefinitely; management has concluded thatsome of this capacity can be used to nassemble the bikes and sellthem at $450 each. Assembly the bikes will increase directmaterials by $5 per bike, and direct labor by $20 per bike.Additional variable overhead will be incurred at the normalrates,but there will be no additional fixed overhead as a result ofassembling the bikes.
Instructions
a. Prepare an incremental analysis for nthe sell-or-processfurther decision
b. Should donkey sell or process further? why or why not